Fraud is as old as crime itself. Patterns emerge, are cracked, and then overhauled by crafty schemers. Methods become more sophisticated and evolve with technological innovations. In turn, companies must remain vigilant and adapt strategies against new types of attacks. Such strategies were the topic of a recent financial excellence radiocast for SAP Game-Changers, discussed by three expert panelists.
A sobering stat
If you think fraud is something that only happens to other companies, Derek Snaidauf, senior manager of advanced analytics with Deloitte, offers a startling wake-up call: “By some estimates, the typical organization loses five percent of its revenues to fraud each year, which translates to a potential projected global fraud loss of over $3.5 trillion.”
That number is not easy to dismiss, Snaidauf offers a few reasons for the growing fraud problem:
- Further advances in technology
- Improved coordination
- Lower barriers to entry
- Turbulent economic conditions
Fraud isn’t just on the rise in one area, but pervasive across all industries. Snaidauf says that the time for reactionary behavior and chasing lost payments is over. You need to prevent the dollars from going out the door in the first place.
A case for predictive analytics
President of the Cangemi Company, Michael P. Cangemi, believes most companies don’t leverage predictive analytics enough in disbursement areas, instead using a contingency firm to avoid double payments. This doesn’t fix the system – and then companies give half of the recovery money to a contingency firm. It’s not a sustainable model as the threat of fraud grows stronger.
“If you don’t think it’s happening, you’re just naïve,” Cangemi challenges. “The question is how much it is and then the cost benefit of implementing some kind of controls.”
Jérôme Pugnet, director of solution marketing for SAP solutions for governance, risk, and compliance, takes issue with the “predictive” label, because you cannot predict a specific event. Instead, he specifies, “It [software] helps you predict where it could happen, most likely, and how it could happen so you can be prepared.”
According to Snaidauf, a leading practice is having an enterprise fraud management office, the size of which varies based on the severity of your fraud problem. The trick is to break free from silos to centralize fraud applications throughout an organization, boosting their value. Institute a set of pillars to lead a successful fraud prevention program with:
- Data scientists to build the rules and models
- Investigators to pursue leads
- Processes in place to treat and deal with fraud in the most effective manner with comprehensive analytics
A future of cooperation instead of competition
In the coming years, the panelists envision a climate where fraud detection approaches are far more open and shared across companies and industries. Big Data and social data will also play a large part in enhancing predictive models.
Pugnet takes this one step further, positing a theory that enhanced predictive capabilities will uncover trends that revolutionize the way employers treat their workforce. Motivating employees and treating them well could do a world of good in abating fraud. Instead of disgruntled employees with motives to commit fraud, there will be a team of workers invested in protecting the company from such actions.
Is your business ready to adopt predictive analytics in the fight against fraud? Get more information from the full radiocast.